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Issues Involved:
1. Deletion of the addition of Rs. 1,25,000 representing unexplained investment in loans. 2. Deletion of the addition of Rs. 74,000 representing unexplained cash credits. Detailed Analysis: 1. Deletion of the Addition of Rs. 1,25,000 Representing Unexplained Investment in Loans: The revenue challenged the deletion of Rs. 1,25,000 by the CIT(A), which represented unexplained investment in loans given by the assessee. The Assessing Officer (AO) had inferred that the bank statement reflected payments of Rs. 1,17,000 received by the husband of the assessee from MND and Sons, not Rs. 1,25,000. The CIT(A) deleted the addition, observing that "Undisclosed income Chapter XIV-B has to be determined on the basis of evidence, documents, material and information found during the search." The CIT(A) noted that no such document or material was found during the search to justify the addition. The primary facts relating to the loans were disclosed in the returns of income, and the interest accrued was offered to tax for the respective assessment years. Thus, according to CIT(A), the addition of Rs. 1,25,000 was deleted as it did not arise from the search evidence. 2. Deletion of the Addition of Rs. 74,000 Representing Unexplained Cash Credits: The revenue also challenged the deletion of Rs. 74,000 (though the correct figure appears to be Rs. 64,000 due to a possible typographical error). This sum was found deposited in the bank account with Canara Bank. The AO did not accept the explanation provided by the assessee, considering it undisclosed income under section 158BC. The CIT(A) deleted the addition on the ground that the unexplained cash credits did not arise as a result of the search. Legal Framework and Precedents: Chapter XIV-B, introduced with effect from 1-4-1995, lays down a special procedure for working out undisclosed income in cases where search and seizure operations have taken place. Section 158BA states that assessment under Chapter XIV-B can be made only in respect of undisclosed income arising as a result of search. The law permits two types of assessments: regular assessment and block assessment. The block assessment is based on evidence found during the search or requisition of books of account under section 132A. The judgment references several precedents, including: - CIT v. Shamlal Balram Gurbani [2001] 249 ITR 501 (Bom.): Claims of allowance found false as a result of search cannot be taxed under Chapter XIV-B. - CIT v. Ravi Kant Jain [2001] 250 ITR 141 (Delhi): Income discovered through special audit post-search cannot fall under Chapter XIV-B. - N.K. Mohnot v. Dy. CIT [1999] 240 ITR 562 (Mad.): Advances explained with details cannot be taxed under Chapter XIV-B. - CIT v. Vinod Danchand Ghodawat [2001] 247 ITR 448 (Bom.): Unaccounted investments disclosed in Wealth Tax returns do not fall under Chapter XIV-B. Departmental Circular: Departmental Circular No. 8/02 dated 27-8-2002 clarifies that undisclosed income in block assessment must be based on evidence found during the search and further inquiries based on such evidence. The circular supports the view that addition of undisclosed income in block assessment can only be made when some evidence has been found in the search. Conclusion: The Tribunal concluded that no evidence, either direct or prima facie, was found during the search to justify the additions of Rs. 1,25,000 and Rs. 74,000. The additions were based on post-search inquiries independently carried out by the AO, which had no nexus with the search. Therefore, these items do not fall under Chapter XIV-B, and the appeal of the revenue was dismissed.
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